Q2 2022 Amerisourcebergen Corp Earnings Call
Including our most recent 10-K.
<unk> assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company you'll have an opportunity to ask questions. After today's remarks by management. We had that you limit your questions to one per participant to work for us to get to as many participants as possible within the hour with that I'll turn the call over to Steve.
Thank you <unk>.
Good morning, and good afternoon to everyone on the call.
Before we discuss our results for the quarter I wanted to provide a brief update on opioid related litigation.
As previously disclosed on April the second.
Comprehensive settlement agreement to settle a substantial majority of opioid lawsuits filed by state and local governmental entities became effective.
46.
<unk> is one of the district of Columbia, and all the eligible tariff fees as well as other 98% of eligible subdivisions in the space agreed to participate in the settlement.
Additionally, we have reached an agreement for a settlement with the state of Washington that is consistent with the state's allocation under the comprehensive settlement agreement that brings the total number of states stapling opioid related claims to <unk> 47, or 40 non editable space. We are encouraged by this.
Progress and we look forward to providing further updates as they become available.
Turning now to our second quarter of fiscal 2022, I am excited to discuss our results and the continued progress we are making on our strategic imperatives.
During the quarter revenue was up 17% over the prior year to $58 billion.
Adjusted operating income increased by 30% and adjusted EPS grew by 27%.
Our exceptional results reflect continuous positive momentum across our business as we delivered high levels of execution and capitalize on the strength of our differentiated value proposition.
Building, a broad set of leading capabilities deep customer relationships innovative manufacturer solutions and expanded global footprint.
In the U S. Our leadership in specialty continues to differentiate.
Our robust distribution capabilities.
<unk> preeminent estimates and integration of innovative solutions allows us to serve both manufacturers and providers.
The unique needs, while providing a vital connection should help improve patient outcomes and access.
<unk> manufacturers and providers, we recently launched an enhanced digital dashboard offering.
Our new World class, III, and digital portal that streamlines KOL specialty GPO processes.
Improved data accuracy and availability and enhances transparency.
With real time data at their fingertips.
Manufacturers gain visibility into market trends and provide us a better able to streamline their operations.
This is yet another example of how our teams are embracing their intellectual confidence and leveraging our data and analytics capability to move the industry forward boldly.
Building upon our strong legacy of creating solutions and services that meet the unique needs of our partners.
In addition to our continued efforts to enhance our solutions portfolio.
Manufacturer services team have been realigned to streamline our contracting and engagement with biopharmaceutical manufacturers with the goal of holding Florida and more robust relationships.
With our ability to offer a full suite of market, leading capabilities for market access and distribution to patient access and adherence we are uniquely positioned to be a key partner for <unk>.
<unk> pharmaceutical manufacturers and providers.
Our prominence and market presence have uniquely position amerisourcebergen to leverage our platform and capabilities to support the global response to the pandemic.
And we are proud to have played a central role in supporting pandemic efforts globally.
Our contributions having treated providing specialized logistics services facilitating access to testing and distributing millions of doses of vaccine in over 30 countries across four continents.
In the U S. We have worked with governments and manufacturer partners.
COVID-19 antibody and anti viral therapies, including the auto Covid treatments, where it works the support of services at pharmacies have provided to their communities throughout the pandemic.
Including education testing and vaccinations.
In fact, our good neighbor pharmacy network recently allocated $5 million COVID-19 vaccine dose as part of the favorable retail pharmacy program for COVID-19 vaccination.
Since February of 2021, good neighbor pharmacy has helped more than 1600 independent community pharmacies in 45 States, Puerto Rico, and Guam to participate in this favorable program.
With activity supports continued patient access to care for a lot of our pharmacies.
Leading academic related services that have helped to keep communities safe and advocate for expanded provider status to keep communities healthy over the long term.
Increasingly important providers are empty and communicate all of those who came four outfits.
Animal health business, we are some of the building on our relationship with inherence to help them access to pharmaceuticals, healthcare products and supplies they need to serve their patients.
Side by side with new practices to automate and streamline processes to improve the efficiency and enabling them to maximize time spent with patients and improve outcomes.
<unk> easy pay program for example, health safety practices improve access and adherence to their patients preventative care plans.
While introducing automation to remove the burden.
Administrative and marketing processes.
By offering status as technology solutions in both the companion animal and production animal health markets, such as inventory management, not being technology and enhanced tracking capabilities. We are uniquely able to capture the growth opportunities ahead as the human connection.
<unk> continues to strengthen and as the global demand for protein continues to grow.
Turning chart International business segment, we delivered another quarter of growth as we maintained our strong momentum.
Our best in class Global specialty logistics services business remain focused on supporting manufacturers with global clinical trials and on ensuring temperature sensitive shipments.
Right on time and at the right temperature.
Specialty supply chain services team supportive partners across the healthcare landscape provides.
Providing end to end transport solutions than it.
And supply chain efficiency, and a lot of customers, who focus on bringing life changing treatments to patients around the world.
Our team at Alliance healthcare provided high levels of execution and leverage their local expertise to further deepen customer relationships provide innovative solutions to customers and partners and support the global pharmaceutical supply chain to improve patient access and hot Cups.
As we continue to work to integrate systems and teams, we expect to find more opportunities to work together and capitalize on the full power of our combined.
To provide value added solutions to stakeholders and capture the substantial growth opportunities we see ahead.
As we move into the second half of 2022, we remain focused on carrying this momentum forward and building on our core strengths by advancing our strategic imperatives of leading with market leaders, leveraging our infrastructure to increase efficiencies exits and the customer experience.
Safety and innovation to further drive our differentiation is.
Spending on our leadership in specialty and contributing to healthier outcomes around the world.
Our global base of key anchor customers and our strategic partnership model allows us to integrate ourselves into our customers' operations and deepen our relationships with market leaders across the healthcare supply chain.
With our portfolio of innovative solutions.
Things are industry knowledge World class team and a forward thinking innovative mindset, we are able to.
Long term relationships as we helped our customers navigate the healthcare challenges of today and anticipate the opportunities of tomorrow.
Our strong customer relationships are supported by expenses and market, leading infrastructure, which helps us facilitate patient access wherever prescription if needed and to improve efficiency across the pharmaceutical supply chain.
Since the onset of Covid, we have demonstrated the value of our differentiated operating model and our vital role can maintain key stakeholders across the healthcare system.
Supporting government preparedness for current and future potential pharmaceutical needs sharing sharing our equity in vaccine access globally.
I remain inspired by the way T. Memphis have adapted elaborated and innovated to support patient needs.
Innovation remains an important element in our ability to respond to the rapidly changing healthcare environment and to support the advancement of our customers' businesses.
In keeping with our commitment to innovation, we recently established a venture capital fund through which we will support all of the ideas globally in areas such as the future of pharmacy and distribution clinical development and commercialization of pharmaceuticals and practice solutions for healthcare.
Providers and veterinarians.
We are excited to formalize a process of leveraging our deep expertise and broad networks of relationships to support four thinking companies as they identify innovative solutions that can benefit amerisourcebergen partners and the patients they serve.
The venture Capital Fund is another example of our continued efforts to enhance and grow our platforms across healthcare channels somehow.
Sometimes that Cardiome is best served by partnering with smaller entrepreneurial companies to help them reach their full potential.
Importantly, our venture capital fund will invest in companies that amplified innovation themes I have been discussing today.
Pharmaceutical innovation is advancing at an exceptionally rapid pace, particularly in the specialty and cell and gene market, where we continue to differentiate ourselves as the market leader.
During the quarter, we along with our partners attract sell leading innovative immuno orchestration solutions.
<unk>, an integrated technology platform designed to accelerate patient access to prescribed cell and gene therapies and to deliver complete visibility throughout the treatment journey.
Therefore, any increases in activity between the patient services and providers, resulting in a seamless and Tom the exchange benefit.
But any information that expedites patient enrollment and support.
Timothy helping patients started on therapy sooner.
This partnership is an example of how we are leveraging the full breadth of our strength in specialty to create innovative solutions for patient access to promising new therapies.
In offering differentiated solutions for pharmaceutical innovators, we further our position as the key pillar supporting global pharmaceutical innovation.
The global health care solutions that leverage our expanded footprint.
<unk> in all phases of pharmaceutical development and our investments across the pharmaceutical supply chain.
To contribute to positive pharmaceuticals, driven outcome.
This work is core to our purpose and who we are as a company.
As an organization. We are 42000 purpose driven team members do not in our responsibility to create healthier futures.
Our team members before inspiring work every day and we are focused on supporting the continued growth and development in Amerisourcebergen.
We know that empower our team, we must operate with transparency and greater culture that values diversity and inclusivity and belonging.
Our recent disclosures with a focus on transparency, we provide enhanced human capital disclosures in our most recent 10-K and we have separately disclosed.
One report in our most recent global sustainability report, we disclosed on gender pay gap in the United States, which revealed that for every dollar of growth.
Okay.
Female employees at Amerisourcebergen have paid 99.4 things.
We are proud of this statistic that demonstrates what we believe about our culture and the way we risk based and value of our team members is being validated a more extensive data and shops.
As a further reflection on both my personal dedication and amerisourcebergen, even not a commitment to advancing equal gender lots and opportunities.
I was honored to sign the CEO statement of support for the United States Nations Women's empowerment principles in March.
We believe management and our board's commitment to adulthood.
And equitable culture is working and look forward to continuing to share our progress there.
<unk> equity and inclusion initiatives.
One of the ways, we have identified to further our progress isn't assisting critical efforts to improve health equity and our communities.
For example, the Amerisourcebergen Foundation has been a longstanding partner to the National Association of school buses to optimize student health and learning by advancing the practices of skilled nursing.
Recently, we expanded upon our support for education.
Sponsoring a supply chain elective course, Xavier University, Louisiana College of pharmacy.
<unk> ranked historic exact University and a tough AG paydown that performance is in the country.
By embracing tomorrows covers health kidney, this while making a meaningful impact and promoting inclusivity and equity opportunities.
We invite you to visit our global sustainability, Microsoft and ESG reporting this two views of data strategies and stories representative about diverse and inclusion journey.
As a purpose driven closet organization.
So those would be tracking global events and the impact on the communities, where we live and work.
Conflict in Ukraine is a solid continuation of the challenges of the past few years and I think the aim of our colleagues slow base date.
These within our business and our global business resilience organization are in active communication to do everything possible to ensure the safety of our colleagues on the ground in Ukraine.
Our associate assistance fund, which supports team members facing financial hardship due to advanced outside their control has provided financial assistance to the Ukraine based team members as well as team members around the world, while supporting immediate families in the cockpit.
Team members from 29 countries and counting on stepping up to provide financial support to help address the humanitarian crisis and under around Ukraine.
Our matching gift program.
This should be the Amerisourcebergen Foundation has provided financial donations and our business drug release, providing product donations to support both human and animal health in the region.
We join organizations from around the world and our hope with harmony and peaceful aimed to the country.
At the same time.
<unk> strength and confidence in the fact that our organization has never been better positioned.
Positively impact, Oxford entities and that we are living our purpose as.
As we continue to be an audit and our responsibility to create healthier futures.
Building on our strong momentum across our business and delivering on our strategic priorities to further strengthen our relationship with our customers.
Advanced global pharmaceutical innovation and enhance our differentiated value proposition.
I'm thankful and grateful for their commitment and performance of our 42000 purpose driven team members, who helped our partners and customers navigate the increasingly complex and evolving global health care landscape Amerisourcebergen is a global health care. So.
<unk> leader and he is focused and executing to advanced pharmaceutical innovation and access to create a positive impact on the health of our people and communities around the world.
We move into the second half of our fiscal year with significant momentum and are well positioned to continue creating significant long term value for our shareholders.
Now I will turn the call over to Jim for a more.
More in depth review of our second quarter 2022 results and to discuss our updated financial guidance Jim.
Thank you Steve and thank you all for joining us on today's call before I turn to our results as usual my comments will focus primarily on our adjusted non-GAAP financial results growth rates and comparisons are made against the prior year March quarter for more details on our GAAP results. Please refer to our earnings press release.
Amerisourcebergen.
Actual results and our second quarter, that's our pharmaceutical centric strategy continued to drive strong performance across our business. Our long term leadership in specialty and commitment to delivering innovative solutions for our partners continue to be key differentiators in our fundamental long term strategic imperatives.
Our purpose driven team members have worked diligently to support our stakeholders, which has driven our strong results.
Turning now to our second quarter results Amerisourcebergen finished the quarter with adjusted diluted earnings per share of $3 22 at.
At 27% increase with strong operating income growth in both our U S Health care solutions segment and international type of care solutions segment.
Our consolidated revenue grew 17% to $57 $7 billion driven by revenue growth in both segments consolidated gross profit increased 47% to $2 billion as a result of increases in gross profit in both segments.
Gross profit margin grew by 76 basis points to 384% driven by the alliance healthcare acquisition and the increase in the U S Health care solutions segment.
Consolidated operating expenses were one $3 billion up from $806 million as a result of higher distribution selling and administrative expenses and depreciation expense, primarily due to the alliance healthcare acquisition.
Consolidated operating income was $917 million up 30%. The increase was driven by operating income growth in both segments, which I will touch on in more detail when discussing the segment level results.
Turning now to interest expense and the income tax rate net interest expense was $53 million in the quarter, an increase of 53% due to an increase in debt related to the alliance healthcare acquisition are.
Effective income tax rate was 21% compared to 21, 9% in the prior year quarter.
On a diluted share count increased two 3%.
212 million shares as a result of dilution related to employee compensation and the June 2021 issuance of 2 million shares to Walgreens Boots Alliance in connection with our acquisition of Alliance healthcare.
Regarding free cash flow and cash balance and adjusted free cash flow with $951 million for the first half of fiscal 2022, we ended the quarter with $3 $5 billion in cash, including $500 million of restricted cash on our balance sheet.
In the quarter, we repaid our $250 million term loan prior to its maturity date in line with our commitment to the rating agencies to Paydown two thirds of the debt issued to acquire lines healthcare as a reminder, we continue to pay down $2 billion in debt within two years of closing the acquisition and we are well.
We are on track to achieve this debt Paydown by March 2023 ahead of schedule.
This completes the review of our consolidated results now I will turn to our second quarter segment level results.
Starting with our U S Health care solutions segment segment revenue increased by five 8% to approximately $51 billion driven by a broad increase in sales across our portfolio, including growth in sales to specialty physician practices.
And over $300 million decline in sales of commercial COVID-19 therapies.
Revenue from U S. Human health was $49 8 million.
Representing growth of five 8%.
Revenue from our animal health business was $1 2 billion.
Up three 9% year over year as many veterinary practices were closed or have limited hours in January carrying into February due to COVID-19 related staffing issues. The animal health market continues to have good fundamentals supported by high levels of pet ownership and spending and increasing global demand for <unk>.
Protein, which we expect to be enduring trends in the coming years.
Segment operating income was $730 million representing growth of 11, 4% versus the second quarter of fiscal 2021, driven by the important work we are doing to distribute COVID-19 treatments and good performance across our businesses.
Our manufacturer solutions businesses rebounded during the quarter in line with my commentary from last quarters earnings call.
Our human health distribution businesses continued to benefit from prescription growth across the market underscoring the resilience and importance of our industry.
The segment also benefited from our important work supporting Covid therapy distribution across the country, which meaningfully contributed to our strong growth and margin expansion.
U S health care solutions segment operating income margin increased 70 basis points in the quarter, primarily due to fees earned relating to the distribution of government owned COVID-19 treatments.
As it relates to the co based therapy impact on the quarter.
Contribution was higher than previously expected for the quarter and contributed 22 cents to EPS, resulting in a 15.
When over the prior year quarter.
This higher than expected contribution in the second quarter as a pull forward our full year expectations for Covid contribution are generally unchanged.
For fiscal 2022, we are estimating the contribution from Covid treatments in the U S to be around 60 cents for the full year.
We're working closely with a variety of stakeholders to ensure the treatments reach areas, where they are most needed and are encouraged by efforts to make them more accessible, especially as supply improves.
I will now turn to our international Health care solutions segment in the quarter International Healthcare solutions revenue was $16 $8 billion, including five $6 billion in revenue from alliance healthcare and high teens growth for the balance of the international Health care solutions segment.
Segment operating income for the second quarter was $187 million.
261% on.
On a reported basis.
Alliance Healthcare has continued its strong performance and like the rest of Amerisourcebergen pharmaceutical centric nature of the business.
Well to continue delivering solid operating performance.
<unk> team at Alliance healthcare continues to impress with their ability to operate through challenges in the region.
In addition to the solid performance and execution and collaboration between our teams globally continues to impress and positions us well to capitalize on long term synergy opportunities going to market with differentiated global solutions.
The strong results in the quarter for the international segment in the face of significant foreign exchange pressure as well as supply chain cost pressure are a testament to the resilience of the business and underscore the importance of our pharmaceutical centric strategy.
This completes the review of our segment level results now I will turn to our updated fiscal 2022 guidance.
As a result of our strong performance in the first half of our fiscal year end to reflect continued momentum in the second half we are raising our fiscal 2022 and adjusted EPS guidance from a range of $10 60 to $10 90.
Our new guidance range of $10 80 to $11 five.
Reflecting growth of 17% to 19% from the prior fiscal year, resulting from the increase in our expectations for full year consolidated operating income.
In the U S Health care solutions segment, we are increasing operating income guidance to be in the range of $2.42 billion to $2 four 8 billion.
Presenting growth of 7% to 10%.
As I said earlier, our U S Health care solutions segment operating income includes around 60, <unk> full year contribution from COVID-19 treatment distribution, which is generally in line with the Covid treatment expectation, we had embedded in last quarter's guidance.
The increased guidance for the segment as a result of the continued operating strength and resilience of businesses. In this segment, which has been on full display throughout the pandemic.
Turning now to international Health care solutions. There is no change in our full year guidance for that segment. Despite the significant foreign exchange pressure caused by the relative strength of the U S. Dollar.
Let me take a moment to highlight a few of the key items that impact the comparison between the first and second half.
First our guidance contemplates that the dollar remains strong in the second half of our fiscal year, our international healthcare segment's businesses are performing well, including alliance healthcare, which is performing above expectations at our original budgeted foreign exchange rates, assuming an exchange rate.
In the month of April continue for the second half of the fiscal year, the foreign exchange impact on our actual dollar results for the full year would be north of $80 million when comparing expectations versus constant currency meeting using the prior year exchange rates.
And with April exchange rates, we would expect to finish closer to the bottom of our segment guidance range.
Second while the dollar has been a headwind favorable manufacturer price adjustments this quarter in one of our developing market countries have more than offset the negative impact of the decline in value of local currency. These annual price adjustments are generally in line with local levels of inflation, but were higher in the current year.
As a result of the significant decline in value of local currency.
Third the vaccination support work being done at my Inborn, Canada and alliance healthcare in Europe is expected to contribute around 10 cents to our fiscal 2022.
Almost all of it having already occurred in the first half of the fiscal year.
<unk> partnership with Fedex to support Canadian vaccination efforts has been an important work and represents a small portion of that 10.
Alliance Healthcare has played a significant role in the European Covid response across its footprint.
<unk> vaccines, and Covid test of pharmacies and other sites of care throughout Europe .
We expect the contribution from this activity to largely subside in the second half as COVID-19 moves away from the emergency face of the pandemic. The contribution from this important work is largely offset supply chain cost pressure in the first half.
Finally, we received regulatory approval on our sale of pro forma specialty in Brazil, which we called out on our November earnings call. The business contributed over four cents to the international segment in the first half of fiscal 2022.
Overall in the International Health Care Solutions segment. We believe is impressive that we are able to reiterate the full year actual dollar contribution from this segment in spite of the substantial foreign exchange pressure without the negative impact of foreign exchange, we would be raising our full year guidance for <unk>.
International Health care solutions segment operating income.
As a result of the increase in our U S Health care solutions operating income guidance and results in the International Health care solutions segment, largely mitigating the foreign exchange headwind, we are raising our expectations for consolidated operating income growth to be at least in the high teens.
Cent range up from growth in the high teens percent range. This includes approximately 70 consolidated benefit related to our work supporting COVID-19 treatment and vaccine distribution across our footprint.
Before I conclude my prepared remarks today I would like to briefly touch on one of our ESG initiatives.
The importance of business resiliency has become more clear things never has a world around us continues to change and become more complex.
Maintaining resilient and stable operations is a key focus as we navigate the environmental challenges and fulfill our vital social role.
To ensure the safety and stability of the pharmaceutical supply chain, we maintain a robust business continuity practices.
<unk> monitoring for potential threats.
<unk>, our business such as climate related and geopolitical events.
This work supported by the outputs of the physical risk assessments of our top locations and enables strong continuity plans to support our critical role of delivering lifesaving medications every day.
In closing I have been and continue to be inspired by the strength and resilience of our business and the value created by our team members robust partnerships innovative solutions and pharmaceutical centric strategy, we are well positioned to continue driving sustainable long term growth and.
To deliver on our purpose of being United in our responsibility to create healthier futures.
Thank you for your interest in Amerisourcebergen and I will now turn the call over to the operator to begin our Q&A.
Operator.
As a reminder to ask a question today. Please press star followed by one of your telephone keypad now.
Last question today comes from Elizabeth Anderson with Evercore. Please go ahead. Your line is open.
Hi, guys. Thanks, so much for the question and all the color on the corner.
I guess in terms of I heard what you said about the contribution from Covid therapies in the quarter, and then sort of unchanged expectations for the full year and youre seeing that as a pull forward can you maybe in a little bit more detail talk us through the other puts and takes.
As you sort of see things progressing in the back half of the year.
Yeah sure. Thanks, a lot for that question and.
Ill start out by saying that we're really pleased that we're able to increase full year guidance of three key metrics consolidated operating income in U S Health care solutions segment operating income and EPS and also known as I said that we would be increasing our operating income guidance for the international health care solutions.
This segment, if not for the negative impact of foreign exchange.
And the reasons for the increase in guidance, where the stronger than expected performance in several businesses.
The.
And as I said the increase in FY 'twenty two guidance is not due to the important COVID-19 treatment distribution work that we're doing.
That contribution from Covid product distribution was higher than expected in the second quarter, but we view that as a pull forward and our full year expectations from Covid product distribution are largely unchanged around 60 in the U S and 10 internationally. So 70 cents on a consolidated base.
<unk>, which was about what were expecting three months ago. When we provided guidance a few months ago and so what we're seeing in U S health care solutions segment.
<unk> increasing.
Guys due to broad based performance across several businesses and we expect that to continue notably specialty physician services prescription growth across our businesses and the recovery and manufacturer solutions. So those are three kind of key.
Key components that enabled us to increase guidance and we'd expect strong performance to continue there.
International Health care solutions, there are a number of moving pieces that I mentioned that impact guidance importantly, we talked about the impact of FX and the strong dollar.
And we size that at north of $80 million on a constant currency basis, our guidance assumes that the April FX rates hold for the balance of the year and so thats a moving piece I noticed that we benefited from a manufacturer price adjustment in a developing country and for the full year.
<unk>.
That price increase fully offset the decline in value of that local currency and international as I mentioned, we have 10 of them.
<unk> product benefits.
First of which.
In the first half of the year and then also one thing impacting our international guidance as the sale of <unk> pharma specialty in Brazil, which contributed <unk> <unk> in the first half of 'twenty, two and I think talking about international a key point to make about our international segment.
It's performing better than expected at the initially budgeted FX rates and finally, you'd mentioned at <unk> contribution and I think we've been very transparent about the COVID-19.
<unk> contribution and will continue to be transparent with that it contributed about <unk> 22 in the second quarter 32 in the first half and 60.
For the full year is our expectation on these.
Sensor for the U S and kind of the way that we come up with that estimate is for each product we estimate the full year volume.
Calculate the full year contribution there is significant volume from government owned anti Virals and we assume that most of our distributors. We're not factoring in all of the volume that we expect to receive by the end of September but we assume that we distribute most of that by the end of September . So those are some of the key.
<unk> that go into our guidance.
Key moving pieces and we will continue to be transparent both in.
In the U S and internationally in terms of the contribution from Colgate products I think the most important takeaway is that overall, we feel very good about our momentum and guidance increase is driven by stronger than expected performance across several businesses.
The next question comes from Lisa Gill from Jpmorgan. Please go ahead.
Okay.
Lisa Gill with JP Morgan. Your line is open please ask your question.
Uh huh.
Good morning, Thanks for all the detail Tim I just wanted to go in a little bit deeper on a couple of things that you talked about one.
You talked about S&P. This to the physician office are you seeing uptake in Biosimilars and is that helping to drive the profitability Secondly, we've heard some rumblings around.
Some product shortages on the generic side clearly China shutdown. Once again are you seeing any type of inflationary environment on the generic side that that's helping to drive the numbers at all and then just lastly, when you call at the 70 <unk>, how do you think about that for 'twenty.
Are you calling that out for us so.
Do you think it repeat itself and years going forward or should we think about that is that a one time here in.
In 2022.
Okay. So there are I think three things there.
Biosimilars and then I think drug pricing.
And then kind of.
70 <unk>.
Im therapies, and what we would expect for that for the future. So on.
Biosimilar.
Clearly, it's been benefiting us and our specialty businesses and particularly our specialty physician services businesses and we expect there to be continued growth and benefit their biosimilars as we'd mentioned that particularly in that part of the business are a profitable part of the business for us with strong.
Margins and so the fringe benefits that we're seeing there are.
Quite positive and we would expect it to be enduring with regard to drug pricing.
Overall and I think your question was mostly around generics is theres really.
Nothing new to call out.
Overall, the deflation rates are relatively in line with the last couple of years, we expect that to continue throughout our fiscal year.
From a supply and demand standpoint supply and demand dynamics remained generally imbalance and as we've talked about a really important point is that our business model is not as reliant on generic pricing as it once was in the past our leadership team has done a very good job of.
Rebalancing contracts have balanced profitability across the portfolio of pharmaceuticals, including brand generic and specialty to make sure we receive fair compensation in all those areas.
So really nothing new to call out on the pricing side, and then with regard to the 70 cents benefit from.
Covid products of course, 60 <unk> of that is co bis.
<unk> treatments in the U S.
Of that for this fiscal year is international vaccines and other products.
Just wanted to be really transparent to call that out and we'll be and we'll continue to be transparent.
In future quarters in 'twenty, two and I would expect in 'twenty, three calling out what or.
What our Covid treatment benefits are and it's something that is as you can imagine it's to a large extent beyond dark.
Control.
So it's hard to predict what the.
What the what the volumes are going to be next year and so that's one of the reasons Lisa why we continue to be transparent in giving the specific numbers.
The next question is from Charles <unk> from Cowen Charles. Please go ahead. Your line is open.
Yes, thanks for taking the questions if I could just follow up Jim on the Covid.
Fair, if we think about the remainder of the 60 cents I think you did about 10 in the first quarter. We're talking about a 22 cents here should we or is that more weighted here into the June quarter or or are you thinking about it more evenly through the rest of the year and was the benefit mostly.
In the in January I think Omicron really peaked in January .
And then really kind of tailed off what are you seeing here and how is that demand given that when you look testing volumes have been falling.
Even though as cases rise a bit.
Not as much people finding out whether they have covered or not how does that impact how you get treatments out to folks. Thanks.
Yeah, great questions and so youre absolutely right in the numbers.
Made 32 cents in the U S from Covid treatments in the first half of the year.
It was 2002, the most recent quarter and.
And that <unk> in the first quarter and our expectation of <unk> 60 for the year.
As we look at volumes in the back half of the year.
A significant amount of the volume is the government owned antivirals, which are becoming increasingly available.
And yes, we did see good volume you asked about the month of January we did see good volume during the month of January .
On the front, but as the anti virus.
<unk> become available and there.
Actions that increased access.
For those.
Products, we would kind of expect to see sales throughout the year and our current estimates are that it's not like it's weighted towards the third quarter or the fourth quarter its roughly equal in both the quarters and I think Steve has a couple of comments he wants to make yes, yes. Thanks. Thanks for the question so.
It's been well documented COVID-19 case counts have fallen since the winter when there was a high number of cases.
Very limited supply of the oral treatments amerisourcebergen stands ready to distribute treatments with our most needed pharmacies and other care providers have recognized the value of stocking these oral products and the long shelf lives and effectiveness against new variance has been helpful in driving demand and awareness for the prop.
<unk>.
And we are encouraged by efforts announced by the administration to make it easier for patients to access these treatments, including expanding taste and treatment initiatives at pharmacies and good neighbor pharmacy has been very helpful. In assisting the pharmacists and the critical roles in the community. So.
We as we said we are a credit to the many of our members and we are very.
<unk> about the role for community pharmacy.
And come back in the next phase of the pandemic.
Next question next question.
The next question is from Steven Valiquette from Barclays. Steven Your line is open. Please go ahead.
Great. Thanks, good morning.
So just regarding the success over the past year or two of your condition related GPO operation.
Any update on the.
Our change on by percent share of the per unit economics that are flowing to ABC from that.
Specialty drug procurement youre doing thier position customers.
Status quo on the profit algorithm and also what that contribution still growing meaningfully year over year, just wanted to get a little more color around that.
Yes, Scott.
Steve I know, we kind of all scratching our heads here now.
Imminently.
As more of our own products of course.
It is more cell and gene therapy treatments.
Of course, personalized medicine treatments coming in into oncology, but.
Our proposition for physicians remains very consistent.
Our market share, we all with a lot of the leading companies we have.
We have tremendous we have tremendous <unk>.
Raises with a lot of these aggregator companies we have been working with Amerisourcebergen, often before that would be kind of aggregated performative platform oncology practices have been in many cases, our customers for a long time with one or two cases came back to us with a really into the extensive growth plans.
We should not.
We should definitely mentioned Biosimilars, which has been helpful for our customers mix makes and are important to create a headwind and room for new products to come to market.
Certainly.
Very influential island has been very influential and helping our physicians adopt and patient adoption of those products.
<unk>.
We also are expecting a coffee business to keep growing it.
Not only in oncology, but in our basically medical which does the non oncology physician administered products.
Strong growth trends in all those segments, Jim anything you'd add I think that covers a wealthy.
Thank you.
The next question is from Eric Percher Nephron Research Eric Your line is open.
Thank you.
Wanted to expand on the question relative to Covid ongoing benefits and so I appreciate that youre, giving us exact detail on the impact are.
Are you, giving that in part because the expectation is that the impact going forward is likely to head towards zero or what are your thoughts on post as emergency period.
If we see product, perhaps the year represented moving back into the channel and vaccines, becoming part of the channel.
What is the that is the COVID-19.
Potentially material moving forward.
Yes, So let me let me take a first crack at that.
The reason why we're being so transparent Eric is because.
To a large extent is beyond our control of course, we play a really important part in the supply chain and doing the logistics and providing the asset that's certainly under our control but in terms of the operating income contribution is something that it's more difficult to predict.
Then many aspects of our business that we've been planning for four years and so we provided the 70 benefit 66, which is the treatments in the U S. Specifically because it is a number that is kind of harder to predict for next year and so we want to be very specific.
Calling it out.
I would expect that in all aspects of.
Covid is going to be something that has an impact and we're going to be playing and <unk>.
Important role for many years to come but it's just.
A little bit difficult to predict what the profitability is going to be from it for instance.
In fiscal year.
23.
The next question is from Eric Coldwell from Baird. Please go ahead.
Thank you very much.
My question I feel like I'm already going to stumble over it before I start there is a fair number of moving pieces with international but.
I just wanted to confirm.
You have a <unk>.
Incremental $80 million profit headwind from international due to FX youre going to sell pro forma.
Which will have an additional modest headwind to profit at some point in the second half.
At the same time, there was a one time favorable manufacturer adjustment that partially offset those headwinds and overall, you're maintaining guidance what im trying to get to is what is the net EBIT headwind to your eating between the three items FX manufacturer price increase one timer and pro forma so what has been.
Net headwind youre eating to maintain the annual guidance for the full year.
And so again, let me give you some of the some of the component parts.
As I've said, our assumption in guidance is that the April FX rates hold for the balance of the year and that if we look at that on a constant currency basis.
It would.
It has an.
And in fact, that's north of $80 million on a constant currency basis, and so that that causes us to indicate that while we're maintaining guidance range that causes us to be at the low end of our of our guidance range.
Manufacturer price increase.
With us.
Turkey, and the impact that that has for the full year.
That price adjustment fully offsets the decline in the value of the local currency.
And then.
Specifically.
With regard to pro forma.
That contributed.
Contributed about four cents in.
The first half of fiscal year, 'twenty, two and we expect that transaction to close this.
This month, Eric and so those are those are those.
These are some of the component pieces.
If were not for FX, we would be increasing guidance in our international segment and that the international segment.
It is performing better.
Better than.
Better than initially budgeted expectations that initially budgeted FX rates.
The next question is from George Hill from Deutsche Bank. Your line is open. Please go ahead.
Good morning, guys and I'm going to follow up question on another question on international.
Yes, particularly manufacturer solutions could you talk about what specifically is driving growth in international manufacturer solutions and I'd be interested if you could comment on how the profit mix has changed between the core regular way wholesaling business in Europe .
Which which we think is continues to be under pressure versus profit streams that are derived from providing.
Services to manufacturers. Thank you.
Yes.
Yes sure.
So.
That's one of the things that really attracted.
US too alliance is the high margin higher growth businesses for instance.
Although the business is.
A very strong <unk> business in many parts of Europe , and so just like Amerisourcebergen kind of Florida.
Our largest business is the wholesale distribution, but and we have market leadership, there, but it's really strengthened by these higher margin higher growth businesses and.
Also in international of course, we have the World Courier business, which is a very strong business doing logistics for drug trials. So we do see very good opportunities in and Thats one of the synergy work streams that we're actively working on as for instance world Courier and.
The logo and things, we can do together to make our offering.
Even stronger so I guess, probably kind of the key point to make is these <unk>.
Higher margin higher growth manufacturers solutions businesses.
They are.
A key part of our international strategy and something that we would expect to.
Continue to grow and that's one of the things that you.
Look at our recent performance as we've been focusing in on that and after we've made the alliance acquisition is one of the things that's been enhancing our gross profit margin and our operating income margin.
And just generally I would add that health.
Health care is performing well.
We continue to be very impressive.
I think all very compatible.
Hopefully with the management team.
We are getting to know all the countries, we're always slow as youre getting to visit all of the countries or at least meet with the management teams.
And as Jim mentioned some of the greatest synergy opportunities, we have and looking at the manufacturer services area. Obviously amerisourcebergen has a lot of interesting.
In health systems and specialty products.
And also I think in Europe , you're going to see some changes in where products get administered and sometimes we can help facilitate that change you'll also see us be very involved in solving looking at advancing Dorado community pharmacy and advancing the role of wholesalers market lives. Okay.
The entities, where we serving in the countries, where we serving so it's been a great AD from for our overall portfolio I think.
A lot of the staff people that you don't get to speak to a new sort of calls other than Jim and myself are tremendously engaged in in the cultural integration and looking at all sorts of.
Benefits to streamline and make the business even stronger within Amerisourcebergen, which is already a strong business as I said.
Yes.
The next question is from Michael Cherny from Bank of America. Michael Your line is open. Please go ahead.
Good morning, and thanks for the questions.
I know you had touched base or there are some questions around the pricing dynamic you mentioned the comments relative to drugs and inflation.
What youre seeing on some of the cost sides on inflation, whether it's your own wage employees or particularly some of the dynamics on the shipping side freight is there anything either that you saw in the quarter are baked into the guidance outside the norm of expectations relative to wage inflation wage pressure logistics pricing inflation.
Or anything that you can point out to us.
Yeah, and what I'll say is this.
Higher labor and transportation costs, they continue to be embedded in our guidance and they have been embedded in our results. The last couple of quarters Amerisourcebergen is impacted by higher labor and transportation costs, but less so than most businesses because of the value density.
Our products and so we are certainly seeing and experiencing at the salt businesses do and now, but it's something that we're able to manage and it's.
And it's fully reflected in our guidance and I think that our teams are doing a terrific job of managing these these costs.
So with that I'll wrap up.
Q&A for today.
We are very proud to reflect these results to report these results, which reflect our strong momentum as we finished fiscal.
Fiscal year 'twenty to Amerisourcebergen is really relishing a role as a global healthcare solutions leader that is clearly leveraging our commercial strength and intellectual confidence to continue to deliver on our promise and our purpose and to continue to create long term value.
All of our stakeholders. Thank you for your attention today, and we look forward to further discussions with many of you.
Ladies and gentlemen, this concludes today's call. Thank you very much for your attendance you may now disconnect your lines.